At the World Economic Forum in Davos on January 23rd, former President Donald Trump made waves by announcing his plans to push the Federal Reserve to cut interest rates immediately. He was clear in his demand: “I’ll demand that interest rates drop immediately,” adding that rates should fall globally, following the U.S. lead.
Although he didn’t directly name Federal Reserve Chair, Jay Powell, his message was hard to miss. Trump’s call for action sets the stage for another round of tension between him and the central bank, especially after his history of criticizing Powell. Back in 2016, Trump appointed Powell but didn’t hold back his disapproval, calling him a “bonehead” and even mocking him for his decision-making. Trump even likened Powell’s skills to that of a golfer who just can’t make the shot.
Currently, the Federal Reserve’s interest rate is between 4.25% and 4.5%, following a few cuts late in 2024. While many believe there won’t be an immediate change, some expect a rate cut by June. According to the CME Group, the chances of another cut before the year ends are at 50%. Trump made his stance clear again later, saying, “I expect the Fed to listen to me. They must.”
Interestingly, the stock market seemed to like what Trump had to say. The Dow Jones Industrial Average saw an uptick, and the two-year Treasury yield, which often reacts to policy changes, dropped slightly.
Trump on Inflation and the Biden Administration
Trump also took the chance to discuss the nation’s ongoing inflation crisis, which he blamed on what he called “wasteful deficit spending” during the Biden administration. He argued that it created “the worst inflation crisis in modern history,” leaving American families struggling with rising prices on everything from food to essentials.
The Federal Reserve has certainly been under fire over inflation too. Initially, the Fed thought the 2021 inflation spike was just a temporary issue. But, after raising interest rates by a hefty 5.25%, inflation still remains above their 2% target.
Private Capital and Economic Uncertainty
Trump also shared a big plan to boost the U.S. economy—a $100 billion partnership between SoftBank, OpenAI, and Oracle called Stargate. The goal? To develop infrastructure for artificial intelligence (AI) in the U.S. The project is expected to eventually invest a massive $500 billion. This, Trump believes, will unlock private capital and spur significant growth in the economy.
However, not everyone is entirely convinced. Larry Fink, the CEO of BlackRock, shared some cautious optimism in an interview at Davos. While he sees the potential for growth, he also warned that unlocking private capital could bring new inflationary pressures. If inflation rises too quickly, it could push interest rates even higher, destabilizing the stock market. He pointed to the bond market as a sign of what could happen next.
In short, while Trump’s call for lower interest rates may seem like a bold move, it could set off a chain of economic challenges that may be tough to predict. The next few months will reveal whether his plan pays off or if the markets and the Fed find themselves in a renewed battle.
